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A Room With a 5G View

Every couple of years, the satellite industry seems to be facing a major crossroads of future direction and viability. This year appears to be right on track in that regard. While hopefully not merely cliché, there are definitely some issues looming that can result in some serious handwringing over the industry’s future. Let’s start with the 800-pound elephant in the room — 5G.

The challenge here for the satellite industry is twofold — a possible spectrum grab and the role that satellites will play in the 5G universe. The attempted spectrum grab from the terrestrial/cellular industry is nothing new. What is different this time with 5G is the industry response. Unlike the past, an attempted long-view approach has emerged, favoring a desire for a win-win outcome rather than simply a duel to the death. While this change of direction has not been without controversy, it portends a welcome new mentality. In particular, the emergence of the C-Band Alliance, lead initially by Intelsat (joined by Intel), but which has spread to now include SES, Eutelsat and Telesat, represents a fundamental ground shift in industry response. By accepting a repurposing for 5G use of some portion of C-band capacity, operators hope to preserve sufficient bandwidth to allow for continuity of C-band services where needed the most.

To be sure, the motivation is by no means purely altruistic, as the allure of significant economic rewards via spectrum monetization is clearly a major contributing factor to this change in direction. But, that tells only part of the story, and it is still too early to determine if this stratagem will play out as intended or desired. The devil remains in details that can be quite formidable.

Assuming some form of spectrum monetization is even possible, the paramount question is how that pie is to be divided and who decides. The fact remains that the satellite industry never had to pay for its spectrum in the same way that wireless carriers have in the past, which certainly sticks in the craw of some of the wireless carriers. Also, in the past, every spectrum repurposing of any magnitude has been conducted under the watchful eye of the U.S. Federal Communications Commission (FCC), with the principal beneficiary being the U.S. Treasury. Where any benefit was shared with incumbent users, such as in the case of the recent TV broadcast spectrum reverse auction, the sharing has been modest at best. That is clearly not the play that the C-Band Alliance envisions, where the satellite operators are expecting to reap most if not all of whatever pie there may be. A further complicating factor is within the industry itself, in terms of who sits at the table when the pie is divided. Is it the satellite operators only, or do the ground segment operators have a stake as well and, if so, how much?

In staking out this course, the biggest carrot that the C-Band Alliance can offer is speed. The organization’s approach has the attractive allure of a relatively quick and easy repurposing outcome, particularly if compared to the cumbersome processes inherently involved in any FCC-managed process. So, the stark choice for the government is whether to proceed quickly by largely stepping side, or continuing to control the pie at the risk of very significant delay. Also looming in the background as a regulatory concern is the potentially anticompetitive aspect to this, in that the repurposing process may have the unintended (or cynics may say intended) effect of erecting barriers to entry that could effectively preclude new entrants from entering the satellite services business and providing further protection to the incumbent satellite operators.

Finally, even if the government’s ability to directly partake in the financial gain is forestalled, to the extent that spectrum is viewed as a public good, would there any basis for allowing some of the resulting revenues to be diverted to supporting erstwhile government objectives? In the context of the U.S., this might lead in the direction of diverting some of the profitability in the direction of universal service funding or underwriting new broadband oriented programs. And assuming that what happens in the U.S. becomes the template for the rest of the world, can and should some portion of those revenues be redirected toward supporting broadband availability in lesser developed countries? If so, what are the best mechanisms for that to occur?

The other piece of the 5G puzzle concerns the role that satellites should play in 5G rollout. While some have suggested that 5G’s successful implementation will sound a death knell for major aspects of the satellite industry, I think this concern is largely misplaced for two reasons. First, as has repeatedly been demonstrated throughout the history of the satellite industry, anything new that spurs greater demand for transmission capacity of any type inevitably leads to greater opportunities for the satellite industry. I still for example recall the fear in the 1980s that the transition from analog to digital would eviscerate the underlying economics of the satellite industry, but what happened instead was a skyrocketing demand (no pun intended) that the availability of lower cost satellite capacity produced. That will no doubt be the case with 5G as well. Second, the successful roll-out of 5G will require a degree of coverage ubiquity that terrestrial wireless can never economically achieve, and the only economic way (and in some instances the only technically feasible way) of delivering that ubiquitous coverage will be via satellite.

This indicates a second current handwringing that is taking place — the current perceived glut of capacity driven by the large-scale introduction of High Throughput Satellites (HTS). While perceived overcapacity may legitimately a source of some concern in the short term, the dynamics described above should in the longer term result in much fuller utilization of HTS capabilities.

The third handwringing, which may indeed represent a more credible threat, deals with the prospects of an overabundance of small sat super constellations. Here history is not on our side, and it brings to mind two relevant quips. The first is attributed to Albert Einstein, which is that insanity is doing the same thing over and over again and expecting different results. The second is how to make a small fortune in the satellite industry — start with a big fortune. Taken together, these help illuminate the real challenge here, which is not necessarily whether any single small sat mega constellation can succeed. Past failures notwithstanding, circumstances and technology are sufficient different now that this is certainly possible. The real issue is whether or not the path to that success can ever be achieved in an environment in which way too many systems are attempted. This can result in a death spiral conflagration involving competition for investment capital to build and operate such constellations, competition for available spectrum resources to devise a sustainable network designs, and culminating in competition for sufficient customers to be financially viable. The industry has experienced this scenario at least twice in the past 30 years. Unfortunately, the long view that the industry has finally settled upon on the 5G front has not yet arrived on the mega constellation front.

This brings me to one final issue for concern in 2019, which may not be drawing as much attention as those previously mentioned, but is clearly taking shape as a new darling of the satellite industry. This involves the recent allure of in-orbit servicing of satellites. To be sure, there are certain circumstances in which in-orbit servicing, if available, can afford major industry benefits. The most pertinent example is in the case of an end-of-lifetime scenario where, for reasons beyond the control of the satellite operator, a delay in the availability of a planned replacement satellite would leave the prospect of a loss of service capacity for some period of time. This is the ideal circumstance where availability of an in-orbit servicing option would be incredibly attractive.

However, to the extent the objective of in-orbit servicing is simply to extend for a significant amount of additional time the lifetime of a satellite previously deployed in orbit, the benefits that such an outcome portends are also accompanied by some serious downsides. While from a purely economic perspective, life extension may appear to be a dream come true. By extending the lifetime of a fully depreciated asset, revenue generation at that stage could go straight to the bottom line. By forestalling the need for the launch of a replacement satellite, the risk of launch failure is reduced. But, these attractive features do come with costs. The first is that in-orbit life extension has the effect of perpetuating reliance of out-of-date technology in the sky, not necessarily a healthy outcome for a vibrant technology-oriented industry. The second is the clear anticompetitive effect of allowing satellites to remain in orbit for extended lifetimes, enabling a form of orbital resource warehousing that makes it difficult for new entrants to enter the business. In-orbit servicing should not be viewed merely as an additional tool for possible industry salvation, but a more measured assessment is definitely warranted. VS